• H1 22A results snapshot: Revenue +10% y/y (+3% h/h); EBITDA +5% y/y (-12% h/h), which meant the EBITDA margin moderated by 64bps y/y to 12.5%. Normalized HEPS (N.HEPS) and DPS were stable y/y at ZAr 26.51 and ZAr 17 (4% dividend yield), respectively. Shares in issue increased by 0.7% h/h (+0.2% y/y), while ROE was stable at 14.1%.
  • Results were adversely impacted by once offs: This included ZAR 25mn in losses from the AfroCentric vaccine project investment as well as non-adherence to chronic medication (ZAR 22mn). Adjusting for both items, EBITDA would have increased by 13.7% y/y (4.6% reported) and N.HEPS would have increased by 19% y/y to ZAr 31/share (3% lower than our estimate). We acknowledge ACT has plans to improve non-adherence to chronic medication; however, this could still persist. Accordingly, if we adjust only for the investment related to the vaccine programme, EBITDA would have increased by 9.5% y/y and N.HEPS would have increased by 10% y/y to ZAr 29/share.
  • Administration business (61% of group EBITDA): A steady growth from GEMS was not enough to offset losses from various closed schemes. which saw scheme membership decline by 2.4% y/y (+0.2% h/h) to 3.788mn lives. Despite this, the segment printed strong top line growth of 21% y/y (+9% h/h). EBITDA however only increased by 4% y/y (-19% h/h), as operating costs increased by 24% y/y (+10% h/h). This saw the EBITDA margin moderate by 207bps y/y to 12.7% (-388bps h/h). Within the segment, DENIS EBITDA increased by 417% y/y (-26% h/h) and Healthcare Africa increased by 41% y/y (-9% h/h).
  • Healthcare Retail business (31% of group EBITDA): Top line growth was 4% y/y (flat h/h). Encouragingly, EBITDA increased by 10% y/y (+8% h/h), which saw the EBITDA margin expand by 39bps y/y to 7.7% (+61bps h/h). This was primarily driven by Scriptpharm (EBITDA +99% y/y & +21% h/h) and Mmed (EBITDA +111% y/y & -11% h/h). Scripts dispensed increased by 15% y/y (+15% h/h) to 7.2mn (DOH: +22%; Private: -23%). Pharmacy Direct and Activo Health were adversely impacted by a decline in member adherence to chronic medication compliance, and a desire for preventative products (like vitamins), which has started to revert to pre-covid levels.
  • Cash conversion cycle continues to be impacted by additional inventories related to Pharma (Pharmacy Direct, MMED and Activo): Cash generated from operations was stable y/y (+6% h/h), while total CapEx declined by 37% y/y (-28% y/y). Net working capital was c.12% of revenue, and there was a NWC outflow of ZAR 2.2mn (H2 21A: -ZAR 117mn) vs. a ZAR 95mn inflow in H1 21A.
  • Despite an increase in net debt, the balance sheet remains strong with net debt/EBTIDA of c.0.8x: Net debt increased by 73% y/y (+5% h/h) to ZAR 605mn to partially fund M&A. This in turn increased net finance costs by 76% y/y (+51% h/h). Management continues to promote organic growth and consider compatible bolt-on opportunities.

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